Yet Another Open Letter to Paul Krugman

In your recent blogging effort to excuse those who oppose free trade, you write that “the case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins.” You then conclude that, because Uncle Sam is today unwilling to redistribute income as freely as you like, the “case for ever-freer trade is largely a scam.”

But as I’m surprised you don’t know, the conventional case for free trade in fact does not rely “on the assertion that the government could redistribute income to ensure that everyone wins.” Instead, the conventional case for trade liberalization relies on the reality that, even in the short run, the gains from trade liberalization exceed the losses and, over the long run, trade liberalization improves the material well-being of nearly everyone – all without any government-directed redistribution of income.

Put differently, the conventional case for trade liberalization is identical to the conventional case for economic competition and innovation. Surely you don’t teach your students that economists’ case for competition and innovation “relies on the assertion that government could redistribute income to ensure that everyone wins” – and thereby imply to your students that when government does not actively redistribute income, an economy kept static by monopoly power and by the suppression of technology is superior to one made dynamic by competition and innovation.

Or do you, sir? Your blog post today suggests that you might well indeed teach your students that the case for competition and innovation holds only when government actively redistributes income – and, therefore, that if government doesn’t redistribute income, ordinary people’s economic well-being is best ensured by monopoly power and technological stagnation.

Do you teach your students such nonsense? If not, why do you now peddle it to your readers?

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Krugman, with this blog post, hits rock bottom. The best that can be said about it is that he, perhaps, deceptively alludes to the Kaldor-Hicks welfare criterion, and then – even more deceptively – implies that this criterion is, and has long been, a necessary condition for free trade to be justified. But even here (if my suspicion of his ‘reasoning’ is correct) he misunderstands Kaldor-Hicks, for that criterion doesn’t require actual government-directed income ‘redistribution’.

UPDATE: It’s a sad irony that Krugman’s grievous misrepresentation of the case for free trade appeared on the 240th anniversary of the publication of The Wealth of Nations.